TRIS Rating has assigned the company rating of True Move H Universal Communication Co., Ltd. (TUC) at “BBB+” with “stable” outlook. The rating reflects TUC's competitive position as the third-largest wireless telecom service provider in Thailand and its improved balance sheet after True Corporation PLC's (TRUE) recent recapitalization. Under the TRUE Group, TUC is considered a core business unit, responsible for wireless communications operation. The rating takes into consideration the support from the TRUE Group, such as managerial talent, a well-established brand, and financial support. However, these strengths are partially offset by TUC's weak profitability, aggressive competition, and the large investment required rolling out a nationwide network.
The “stable” outlook is based on the expectation that TUC will maintain its market position and deliver improved operating performance despite aggressive competition. TUC's status as a core business within the TRUE Group is expected to remain unchanged.
TUC's potential for a rating upgrade is unlikely in the near term, but could emerge if TUC’s financial profile and operating performance are stronger than expectation. Any change to TRUE's credit rating will impact TUC's rating, accordingly. The rating downside may arise if TUC's profitability continues to be weak or if TUC makes any aggressive debt-funded investment.
TUC was founded in 2010 and is wholly owned by TRUE, an integrated telecom company in Thailand, operating the fixed-line broadband Internet, wireless telecom, and pay-TV segment. TUC, the parent company of mobile business segment, provides wireless telecommunication services in the 850-megahertz (MHz) spectrum under a 15-year wholesale-resale agreement with CAT Telecom PLC (CAT), and in the 2100-MHz spectrum under a 15-year license from the National Broadcasting and Telecommunications Commission (NBTC). The contractual periods will valid until 2025 and 2027, respectively. The services using the 1800-MHz spectrum band under the concession with CAT was expired in September 2013. TUC's subsidiary, True Move Co., Ltd. (TMV), is appointed by NBTC as the caretaker until July 2015.
TUC is the third-rank mobile phone service provider in Thailand. At the end of March 2015, TUC had a total of 21.5 million subscribers. TUC generated total revenue of Bt74,185 million in 2014 and Bt19,835 million for the first three months of 2015. TUC had about 23% market share based on the number of subscribers and 18% market share based on service revenues in the Thai mobile service industry. TUC was the first mover for 3G (third generation) and 4G LTE (long term evolution) services, launched in 2011 and 2013, respectively. As of March 2015, TUC had about 20.7 million of subscribers on its 3G and 4G networks, or about 25% share in this segment. Going forward, TUC will roll out its 2100-MHz network nationwide, using 4G technology to strengthen its leadership position in data service.
TUC's rating is closely tied with TRUE's credit profile, considering its strategic importance and its contribution to the Group. In 2014, TUC contributed about 67% in TRUE's total revenues and about 39% of TRUE's EBITDA (earnings before interest, taxes, depreciation, and amortization). TRUE is fully involved in TUC's operations, including nominating board of directors and designating the top management. TRUE has provided financial support to TUC in the forms of capital injections, worth about Bt85,000 million during 2011-2014. TUC’s business strength is further supported by the utilization of the TRUE Group's brand, which TUC offers mobile services under “true move H” brand. Moreover, TRUE's stores and outlets bundle all services of the TRUE Group, including “true broadband” (fixed-line broadband Internet) and “true visions” (cable-TV). The support from TRUE enhances TUC's competitive position and is considered positive factor to TUC's rating.
Service revenues (excluding interconnection charges or IC) of the Thai wireless telecommunications industry grew by 1% in 2014, and 3.7% year-on-year (y-o-y) in the first quarter of 2015. The growth was driven by 27% increase in data service revenue while income from voice service declined by 14%. Service revenues are expected to grow moderately in 2015 as the demand for data usage remains strong. The new license auctions are expected to take place in late 2015, which will stimulate investment during the next three to five years.
TUC’s service revenues, excluding the IC, grew by 9%-14% per annum during 2011 through the first quarter of 2015, higher than the industry's growth. The growth driver was data services, supported by its 3G and 4G network expansion, the popularity of social networking applications and the affordability of smart phones. During 2015-2017, TRIS Rating’s base-case expects TUC’s service revenue to grow by 8% per annum on average. Solid increases in data services should be able to outpace the decline in voice services revenue and keep TUC's top line growing. The lease adjusted operating margin (operating income before depreciation and amortization as a percentage of sales) was 15.3% for 2014, improving from 3.2% in 2013. The improvement in the operating margin was largely due to increase in revenue and lower regulatory cost after most of its subscribers are on the 3G and 4G networks. During 2015-2017, TUC’s operating margin are expected to range up to 18%, reflecting cost savings from the 3G and 4G subscriber base and more rationalized marketing spending.
TUC’s balance sheet improved after it received a capital injection from TRUE. In September 2014, TRUE completed its recapitalization by raising Bt65,000 million in new equity from existing shareholders and a new strategic partner, China Mobile International Holdings Ltd. (China Mobile), the world's largest mobile operator by number of subscribers. After recapitalization, the Charoen Pokphand (CP) Group remained TRUE's largest shareholder with a 51% stake, and China Mobile held an 18% stake in TRUE. TRUE injected Bt38,600 million into TUC in 2014. TUC used the proceed to prepay total long-term debt, amounting Bt31,137.4 million. However, TUC's long-term obligation to Infrastructure Fund (IFF) is considered as a debt liability. As a result, TUC's debt to capitalization ratio improved from 70% in 2013 to 40.7% as of March 2015. During 2015-2017, TRIS Rating expects TUC's total capital expenditures of about Bt50,000 million. Leverage is expected to rise to fund network expansion, but TUC has headroom for gearing to support its future investment, backed by its recapitalized financial profile. Given its improving performance, TUC commits to pay dividends to shareholders starting in 2016. The rating incorporates the planned capital expenditure and expected dividend payments which TUC’s debt to capitalization ratio could maintain below 50%.
Fund from operations (FFO) fluctuated during the last five years, due to aggressive marketing spending and large network operating expenses. During 2015-2017, FFO is expected to range from Bt10,000-Bt15,000 million per annum, which results in the FFO to total debt ratio of around 30%.
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